It wasn't until her two daughters were grown and out on
their own that Diana Lautens started to notice how dependent her
third offspring was. It was demanding most of her time and
attention. Even though she had birthed, nurtured and groomed this
one, much as she had the older two, she was starting to feel tied
down and a bit resentful.

Finally, she put the kid up for "adoption," as she now
calls it. Early in 1996, Lautens decided to sell Sunday Afternoon
Gallery, her 15-year-old high-end art prints and custom framing
business in Winnetka, Illinois. She had already shuttered the
profitable branch location in nearby Lake Forest the previous fall
because the effort it took to keep both locations running had
become too much for her. Then, as the new year dawned and she could
see her work schedule cramping her plans to help her daughter plan
a June wedding, she realized, "I didn't want to lie on my
deathbed some day thinking, `I wish I'd done the wedding
instead of the framing,' " she recalls.

By March, Lautens' business broker had found a committed
buyer (one of Lautens' former employees); by May, the deal was
complete, and Lautens took the month of June off to handle wedding
details. Returning to work at Sunday Afternoon as a
three-day-a-week employee--under the terms of the sale--was
"divine," she says now. "I take orders from somebody
who worked for me for many years, and nobody ever asks me to work
Saturdays."

Lautens had piloted her thriving business for more than a
decade, and when she tired of it, she smoothly parachuted to an
easier life. That can happen for sellers who follow a few
common-sense rules that also make sense for businesses that
aren't for sale. Enjoy the ride, experts say, but know it will
inevitably end. Keep the business in sound shape, keep quiet about
your plans for a sale, and keep a realistic eye on what a sale
looks like. These and a few other practices can make your exit as
smooth as Lautens' was.

Dennis Rodkin is a writer in Chicago.

When The Ride Is Over

Lautens was lucky; she noticed right away that she was no longer
enjoying her once-beloved business. "When it stops being fun,
that's the number-one sign it's time to sell the
business," says Barry Merkin, clinical professor of
entrepreneurship at Northwestern University's Kellogg Graduate
School of Management in Evanston, Illinois.

Speaking not only as an academic but from the experience of
building and selling his own metal furniture manufacturing
business, Merkin says, "If the business isn't making you
delighted to get up in the morning anymore, then you're
probably not doing the good job you used to do, so it's a
marvelous time to sell."

But it's also a dangerous time, Merkin says. "When [an
entrepreneur decides] to sell, some kind of emotional `click'
happens--and it gets out of control fast. Instead of spending your
days and nights trying to build your business and keep it healthy,
you are focused on selling it and getting out. But if you start
neglecting the business to try to sell it, your need to sell it
increases and the interest in [keeping it up] is gone." This
vicious circle is self-defeating; it's important to maintain a
healthy business even if you know you are letting it go.

The realization that it's time to sell can dawn any day, so
the smart business owner is always prepared. In fact, experts
advise having your eye on the exit from the day you open for
business; it's a tactic they say keeps the business in its best
shape to be sold and handed over.

"If you know you want to retire when you turn 65, you can
plan on that as a sale date, but most people can't fix their
horizons that precisely," says Frederick D. Lipman, a
Philadelphia mergers and acquisitions attorney and author of How
Much is Your Business Worth? (Prima). "That's why they
should always be preparing for the day they will leave the
business."

A sound business is easier to sell--and to keep. If you're
in a retail business where value is based on how many locations you
have, boosting the number of locations sweetens the pot both for
potential buyers in the future and for you in the present.
Similarly, if your company has developed a product or process but
you haven't gotten a patent, you're exposing yourself to
risk and potentially driving down your company's eventual sale
price.

Money Matters

Even a well-kept business may need tidying up before it's
put on the market. "Two key things to clean up are the balance
sheet and the profit-and-loss statement," says Jack R.
Sanders, a business broker who gathers sales data on small
businesses and publishes it in his annual Bizcomps studies.
"[Move off the balance sheet] all nonoperating assets,
anything that won't go with the business, like a boat or a
plane," Sanders says. "Next, if you haven't been
reporting some of your income--and everybody knows some businesses
don't--that's a fatal error. If you're making the
money, you should put it on the books and pay for it." One big
reason: Most sale prices are figured, at least in part, on the
business's income. Underreporting it will undervalue the
business.

Valuing the business may be the hardest part of preparing to
sell. As with residential real estate, no two businesses can be
priced exactly alike because of the unique nature of each offering.
Sanders' Bizcomps is the closest thing there is to a
real estate agent's list of comparable recent sales. Tabulating
data on some 2,500 sales of businesses each year, Bizcomps
offers some insights into what businesses of your type have
recently sold for. For example, if a business in your field is
listed as having sales of $1 million and as selling for $400,000,
you can calculate that your own business might go for about 40
percent of your annual sales. Of course, comps are only
approximations; the actual sale price is the result of
negotiations.

"Almost all small businesses go for between one-and-a-half
and three-and-a-half times earnings," Sanders says.

Because market conditions and the needs and finances of both
buyer and seller vary from deal to deal, Lipman advises always
selling by auction in order to nail down the right price. With the
auction approach, multiple bidders in an open market establish the
ultimate sale price by bidding against one another. Lipman says
sellers should rely on the auction method so completely that they
don't even establish a minimum opening bid: "That tips
your hand as to where you expect to go."

Go For Broker

Should you sell the business yourself? The consensus among
experts and entrepreneurs is, Don't waste your time trying.
"If the business is something with general value and a high
market, maybe you can sell it on your own," says Alex Oziran,
a Chicago-area entrepreneur who previously built and sold a
medical-transportation firm and now owns three Pearle Vision
franchises. "It's more likely that a small business is
attractive to only a small group of buyers. Get somebody who knows
how to network to those buyers."

Or, as Lautens says, "I know how to sell a serigraph or a
frame, but I know nothing about how to sell a framing
business."

Both entrepreneurs agree a business broker can be an invaluable
aide in selling your business. Like a real estate agent, a business
broker knows not only where the buyers are but also what they want
to buy and how to make your company stand out from the others.
"Even a business that isn't large involves a deal that is
complex enough that you ought to have a business broker to guide
you through it," says Merkin. "What if [you're a
novice] at selling and you wind up dealing with a buyer who's
bought four businesses in the past six years? There will be an
imbalance of skill that works against you in the
negotiations."

Whenever possible, Lipman and Sanders say, it's best to hook
up with a broker who has experience selling businesses in your
field. If you can't find such a specialist, Sanders urges using
a broker who is a member of the International Business Brokers
Association and, even better, one with the Certified Business
Intermediary designation. Both are marks designating brokers who
have sufficient training to sell businesses in various fields.

Leonard B. Sis, owner of Sis Investments Inc., a business
brokerage firm in Oak Brook, Illinois, explains that a broker also
plays the crucial role of gatekeeper. "Try to sell it
yourself, and you'll be overwhelmed by phone calls from people
who want to meet with you but who don't have any money or
people who have no understanding of what you're trying to
sell--unqualified buyers that a broker can screen out quickly and
effectively."

Keeping It Quiet

Screening potential buyers is especially important when you
don't want your employees to know the shop is for sale. A
broker can guarantee that only serious buyers will visit your site
and can ensure they'll sign confidentiality agreements before
those visits.

Is the cloak-and-dagger routine necessary? Absolutely, the
experts concur. "No one else in the company needs to know
you're looking for a buyer," Lipman says. "There is
no advantage to telling the employees beforehand." Tell them,
he says, and you risk seeing them jump ship, possibly taking
important customers or suppliers with them. Even if they stay,
they'll be understandably antsy about the future and distracted
from their work.

"If I'd told my staff members, their anxiety would not
have been good for the business and I'd have less to
sell," Lautens says. "So I waited until I could tell them
I'd sold it to a great guy."

Oziran once sold a business to one of his employees and knew he
was taking a risk. "If I had found out he didn't want to
buy or couldn't, I couldn't have stopped him from letting
word get around that I was selling," Oziran says. He suggests
sellers who want to take this risky route protect themselves by
investigating the employee's finances and interest in
entrepreneurship as thoroughly as possible before broaching the
subject.

Merkin says this closed-mouth policy should extend to suppliers
and others outside the company, as well. "If they've been
depending on you and you tell them you want to sell, they'll be
less likely to rely on you, and there goes your business's
value."

Finally, Sanders cautions business owners against indulging in
the fantasy that they can sell the business for a heap of cash and
retire to a beach somewhere. He finds that about three-quarters of
the transactions listed in Bizcomps involve some form of
seller financing. "People need to get rid of the idea that
somebody's going to walk in and cash them out," he says.
One important effect of seller financing is that it encourages the
seller to stick around and provide training and other consultation
services while the new owners get going, which helps keep the
business successful.

But, as Lautens found, hanging around can spark a new round of
fun. "I'm doing the framing I love," she says
happily, "and I have none of the worries of business
ownership."

Price Points

"No one knows what a particular business will sell
for," says Frederick D. Lipman, a Philadelphia mergers and
acquisitions attorney and author of How Much Is Your Business
Worth? (Prima). Lipman outlines many pricing methods in his
book, the top six of which are described below.

1. Rule of thumb. Some industries have accepted
yardsticks for measuring each business's worth. It might be the
number of subscribers or a formula multiplying gross sales by an
accepted figure.

2. EBITDA. The business's Earnings Before Interest,
Taxes, Depreciation and Amortization is multiplied by a figure that
is the result of a "backward" calculation on sales of
other companies in the same industry. Lipman cautions, though,
against carrying over the multipliers from large companies for
calculations on small ones.

3. Discounted cash flow. Here's where your
business's future, as well as its track record, count most.
Revenue projections and operating profits are discounted in line
with the level of risk that faces your business. Various formulas
exist for determining the discount rate.

4. Comparable company valuation and

5. Comparable transaction valuation. Both methods attempt
to translate figures from similar sales to match the financials and
other relevant data on your business.

6. Asset accumulation. Your business's value is
assumed to be the sum of the ongoing value of each component of the
business. Real estate and trained employees, among other things,
get separate evaluations. This method is valuable if individual
assets are eliminated from the sale; recalculating the price to
reflect those subtractions is a straightforward process.